Outsource effectively to increase profits.

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January 31, 2007

Guess what’s one of the hottest issues in the current presidential campaign? Offshoring jobs of course. While John Kerry plays to the masses by blaming President Bush for massive job losses, he seems to have forgotten that in 1993 as Senator, he voted to implement the North American Free Trade Act (NAFTA). So, way back then, Kerry knew jobs would be lost. Interestingly in 1993 alone, Senate had reports that thousands of manufacturing jobs would be lost. Job loss estimates ranged from 22,500 to 912,000.

What people like Kerry forget in their game of politics is that a slew of new jobs has been created since NAFTA's implementation. According to Economic Policy Institute, NAFTA resulted in exports that created 794,194 new jobs. Overall, the political economy has only helped create more jobs than lost.

But, for a moment let’s assume that Kerry and his ilk succeed in restricting offshoring jobs. What happens then? The offshoring phenomenon has helped boost the economies of many countries; people in these lands now have the money and access to American goods. Through this they invest in the American economy. So if we restrict job offshoring, we’ll effectively be reducing OUR revenues and our jobs. So, what’s the better option?

To increase profits, an organization has to increase its revenues, while keeping costs constant – no brainer right? There’s another method – reducing internal costs like overheads. One of the biggest drains on all cash flow for any organization is its contact center.

Over the past decade many firms outsourced their contact centers to a firm overseas or built facilities offshore that will still be part of the parent company. These alternative locations seemed quite attractive as they promised lower overall costs and a skilled and educated labor pool. And the best part? Salaries would be a fraction of what it was in America.

Welcome to present-day reality: degradation in services, backlash from customers, unfavorable cost structures, and an inability to effectively manage these offshore units. Despite significant investments in these offshore units, many firms are finally accepting the reality: it’s time to come home.

Come August and Accenture Ltd will, for all practical purposes, become an Indian company. That is, the company will have more employees there than in the U.S. The company will increase its workforce in India to 35,000 people by Aug. 31, the end of its fiscal year. The increase in staff in India means Accenture will have more employees there than in the U.S., where it will have just over 30,000, the company's chairman and CEO, William D. Green, recently announced.

Most of the staff in India will work in Accenture's Global Delivery Network, which will have a total of about 65,000 people worldwide by August. The company offers IT and BPO services from India, and it's planning to train its staff there in business consulting and other areas. It has established a business consulting analytics center in Delhi. Computerworld.com reports:

Accenture is expanding in other locations outside of India, including China, where it has deployed four Indian managers at an operation with 3,700 employees. "There will not be another phenomenon like India," said Green, adding that no other country will overtake India in terms of number of employees for at least 10 years,” Green said.

The main reason most organizations outsource their operations is to cut costs. Organizations that outsource operations to offshore environments consistently save money by taking advantage of lower labor costs. However, new evidence suggests that most offshore initiatives could do much better at improving cost efficiency.

One of the main reasons for high costs is that most outsourced projects are often poorly planned, shoddily implemented and ineffectively managed. As a result, cost savings from these initiatives fall far short of their potential. Most organizations are known to be unwilling to invest time at the outset to adequately plan and execute a project. They also wrongly assume they have the internal capabilities to govern an offshore operation.

Staff at the British Broadcasting Corporation (BBC) licensing headquarters in Bristol are on a two-day strike to protest against outsourcing work to India. The workers fear the switch of work could lead to hundreds of job losses in Britain. Indiaenews.com reports:

'We know that UK customers do not want their bank and other personal details sent abroad and we call upon the BBC to intervene in this matter and reverse the decision,' worker's union assistant secretary Andy Furey was quoted by Ireland online website.

January 25, 2007

While just about anybody worth is two-bit sound byte has already said something about the outsourcing phenomenon, much is lost in this public debate. What many people don’t realize is that the actual process of transferring business operations to a third-party company outside the US is not an easy task. It takes up a lot of time, is complex and fraught with dangers.

This means without proper oversight, the entire outsourcing drama could end up as an exercise in futility. Most firms don’t realize that in addition to planning and execution, an outsourcing strategy requires continued oversight to succeed. So, why do some companies perform woefully on the outsourcing front?

One big reason is underestimation. Firms don’t realize that it takes a lot of time, money and resources to manage offshore operations effectively. To worsen the situation, these companies also under invest in the ongoing governance and management of the service provider relationship. This means the company will have to establish a dedicated team of people, on both ends. This will help ensure compliance and adherence to optimum service levels.

Agreed labor and other costs are lower elsewhere. But this doesn’t mean a company can go slack. It needs to continually evaluate the labor situation and have a back up plan ready in case of any problem. One of the most important things you need to find out is if the decision to outsource will give you any monetary benefits. If your service levels and costs are already competitive, it doesn’t make sense to outsource it.

Finally, be more careful in your dealings with laid-off employees. They are often bitter, and could cause your company its goodwill if you don’t deal with them correctly. For instance, let your employees know they are valued. Help them stay current with training in new areas.

Now this one takes the cake. Honestly, I’ve heard of all kinds of outsourcing but expecting parents outsourcing the work of organizing every detail of their pregnancy is … well, a bit too much for me to digest. Well, it could be a sign of the times – people today are busier than ever before. So what does a workingwoman do when she’s expecting?

This means you don’t have to wade through books or check out the latest products for junior. For a steep fee of $7100, you can get everything organized from sourcing the best baby carrier to creating the baby's bedroom and arranging parent confidence classes.
And once the baby arrives, you are assured of the best maternity nurse, a nannies shortlist, advise on feeding patterns and help with establishing routine.

Offshoring manufacturing for cost, like outsourcing in general, does not result in a net cost savings. This is mainly because of hidden overhead costs and because it inhibits, compromises, or thwarts 6 out of the 8 cost reduction strategies. Halfcostproducts.com reports:

When measured on a total cost basis, manufacturing offshore for sale in the U.S. rarely results in a net cost savings, considering differences in labor efficiency and all the costs of shipping, quality, inventory, communications, travel, training, transferring products, support, and complete sets of equipment needed for any manufacture.

Offshoring manufacturing for cost, like outsourcing in general, does not result in a net cost savings. This is mainly because of hidden overhead costs and because it inhibits, compromises, or thwarts 6 out of the 8 cost reduction strategies. Halfcostproducts.com reports:

When measured on a total cost basis, manufacturing offshore for sale in the U.S. rarely results in a net cost savings, considering differences in labor efficiency and all the costs of shipping, quality, inventory, communications, travel, training, transferring products, support, and complete sets of equipment needed for any manufacture.

All’s not well at wonderland. At Walt Disney World, where employees are called “cast members,” almost 500 outside contractors recently have joined the show, putting outsourcing front and center in labor talks that opened this week. Signonsandiego.com reports:

On the outsourcing issue, Disney spokeswoman Kim Prunty said, “Recent initiatives have impacted fewer than 600 jobs, which represents approximately 1 percent of our work force of nearly 60,000 cast members,” Prunty said. “We will continue to look for ways to staff our resort in a smart and efficient way and, on occasion, we will work with appropriate external partners when it makes sense to do so.”